Overview of the auto-marketing scheme. Car makers and manufacturers are a touch ambivalent in the wake of the recent upgrade by OSK Research, of the automotive industry from ‘underweight’ to ‘neutral’.

By Marriam Nazir

“THE demand upside would be marginal as the replacement cycle for new vehicles has peaked, upcoming models may not create enough excitement to spur total industry volume (TIV) growth, bankers are more stringent in approving loans, and buyers have become more cautious,” said OSK Research in a recent report.

This is after the auto sector was dubbed ‘underweight’ last year, with expectations that the aftermath of the March 11 earthquake in Japan would create a shortage of vehicles in Malaysia.

CIMB Research’s findings substantiate the upgrade, though the research said it saw few reasons to be excited due to a stricter credit criteria.

The latter report also forcasted a record high TIV of 628,022 units this year, to wit new vehicle sales due to pent-up demand from last year’s supply shocks.

In January, the Malaysian Automotive Association had forecast TIV to hit a record high of 615,000 units this year, which is a 2.5% increase from the 600,123 units achieved in 2011.

Marketers and advertisers dance on a thin silver line when it comes to economic downturns or financial crisis. Clients want to boost their market share and ergo beat a path to the agency door. Innovation and inspiration is key.

Famous for its sports initiatives, automotive manufacturer, BMW has renewed its naming rights sponsorship of the Women’s Tennis Association Malaysian Open. The tournament this year will be sporting a fleet of BMW 730i’s to be used by the event organisers.

BMW Group Malaysia managing director, Geoffrey Briscoe said that BMW has a long standing involvement at all levels of sport and that this deal highlights its dedication and commitment to sport.

“The competition this year is already receiving tremendous reception from the Malaysian public and with a carnival like atmosphere replete with tennis clinics and engaging activities for the whole family throughout the competition week, we will have so much more to look forward to,” Briscoe said.

BMW became the naming rights sponsor of the WTA Malaysian Open just last year.
In another report, RHB Research Institute, which maintained a “neutral” call on the sector, said there was tepid outlook for the first half of 2012.

It noted that car market participants would take some time in adapting to Bank Negara’s guidelines on responsible lending while component supplies from Thailand (which suffered flood disasters late last year) should normalise in the first quarter of 2012.

Honda Malaysia Sdn Bhd’s plant in Malacca, which had suspended operations last October, is due to resume production on March 20.

Honda Malaysia managing director and chief executive officer Yoichiro Ueno said recently that production at the the Malacca plant should recover fully by the end of April, with an output of 180 cars per day.

RHB Research also opined that new vehicle sales could stay uncertain in the first half of this year although there were prospects for stronger volumes in the second half.
The revision of the National Automotive Policy (NAP), announced in April, would have long-term ramifications on the industry.

OSK Research said it did not rule out the possibility of the Government further relaxing the conditions for new vehicle manufacturing licences, especially in the 1.8-litre and above passenger car segment.

“This may pave the way for the entry of other automakers.” Meanwhile, OSK Research said UMW Holdings Bhd was its top pick in the automotive sector due to the turnaround of its oil and gas segment on securing more oil and gas jobs as well as a foreseeable better year for its equipment and manufacturing division.

“We think UMW’s auto segment margins may improve tremendously this year, driven by a higher localisation rate (for the upcoming Toyota Camry), as well as a stronger ringgit.”

It should be noted that UMW is the largest shareholder in Perusahaan Otomobil Kedua Sdn Bhd (Perodua), with a 38% stake.

OSK Research said it expected Perodua’s volume growth to be fuelled by resilient demand, and the company to grow earnings by 14% in 2012.
Meanwhile, CIMB Research pointed out that the four automotive groups under its coverage had posted mixed financial results for the four quarter of 2011.

“The results of Proton Holdings Bhd and Tan Chong Motor Holdings Bhdcame in below expectations, while DRB-Hicom Bhd was in line and UMW Holdings Bhd was above expectations.”

CIMB Research said that last year, Tan Chong Motor was dragged down by the Thai flood disasters, prolonged supply shortages for selected models and high costs associated with its domestic and regional expansion.

“Tan Chong Motor’s overall profits were also dragged down by the consolidation of Nissan Vietnam Ltd’s losses.”

According to CIMB Research, for the three months under review, UMW has performed well as after stripping off its non-core impairment losses and provisions, the group’s core net profit would have contracted by 24% quarter-on-quarter to RM163mil, which was above the research house’s projection of RM115mil.